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Credit card debt forgiveness: 3 things to know before signing up

Credit card debt forgiveness may help you get out of debt, but there are a few things you should know before enrolling.  Getty Images

Credit card debt can be an overwhelming challenge for a lot of people — especially right now. Persistent inflation has caused the Federal Reserve to hike interest rates several times over the last couple of years, and, in turn, credit card rates — which are variable — have also increased. Those higher rates have caused rising credit card balances — now totaling 1.13 trillion nationwide — making it difficult for those with high balances to pay off what they owe.

If you're currently overwhelmed by your credit card debt, you may be considering credit card debt forgiveness programs. While these programs can offer an effective way to get out of credit card debt, it's important to educate yourself on the topic before signing up.  

Find out how much relief credit card debt forgiveness may be able to provide today

Credit card debt forgiveness: 3 things to know before signing up

Here are a few things you should know before you enroll in a credit card debt forgiveness program:

Credit card debt forgiveness typically takes 24 to 48 months

Debt forgiveness typically happens as part of a debt relief service known as credit card debt settlement. With this process, you typically stop making credit card payments and start sending payments to your debt relief provider instead. 

These payments are held in a special-purpose savings account, and once you have enough money saved to settle your debts, the debt relief company starts negotiating settlements with your creditors. If your creditors approve the settlements, they'll accept a lesser amount than what you owe to pay off your credit card debt — forgiving the remainder of your balance. 

Depending on the provider, this process generally takes anywhere from 24 to 48 months. However, it can take more or less time depending on the debt forgiveness provider you choose and your unique circumstances. 

Learn more and enroll in credit card debt forgiveness now

Credit card companies don't usually forgive 100% of your debt

In most cases, the only way that credit card companies will forgive 100% of your debt is if you file for bankruptcy. With credit card debt forgiveness, the debt relief provider negotiates settlements after months of nonpayment. 

In turn, they may be willing to forgive a portion of your balance to receive at least some payment on what you owe. However, they'll probably want a reasonable settlement amount in return. 

There are some potential drawbacks to credit card debt forgiveness

There are a few potential disadvantages to consider before you seek debt forgiveness, including: 

  1. The credit score impact: Stopping your credit card payments is an important part of the credit card debt forgiveness process, but it can damage your credit score. And, once you've settled, your creditors will likely report the debt to credit reporting agencies as "settled" rather than "paid as agreed," potentially causing further harm to your credit score
  2. The potential tax implications: If a portion of your credit card debt is forgiven, it's considered income by the IRS. So, you may have to pay income taxes on the forgiven amount. 
  3. There are no guarantees: Credit card companies aren't required to accept settlement offers — so not all negotiations will be successful. However, if your creditors don't agree to settle, the debt relief company will return the money you saved through the program for your settlements. 

The bottom line

Credit card debt forgiveness can be a smart way to pay off debt you can't afford, but keep in mind that creditors don't typically forgive 100% of your debt and it can take a while to complete a debt forgiveness program. There are also credit and tax implications to consider. However, if you're facing debt that you can't pay off, credit card debt forgiveness could be an effective way to ease the financial hardship. 

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